First off, the factory jetting is not always correct. The factory oil ratio is 24:1. You are running 40:1, which will richen the jetting. Sounds like everything else is as it is supposed to be, so I would plug chop the mains. When the main jets are as they should be, then start working the needle. When the needle is correct, then you can make final air screw adjustments (which they should be with stock exhaust). I would go with BR8ES plugs as well.
How are you setting the air screws? This is how to do it:
Turning the air screw clockwise reduces the amount of air and turning the air screw counter-clockwise increases the amount of air in the pilot system.
Warm up your engine, then adjust the idle slightly higher than normal. Turn the airscrews in until they seat and then back them 1/4 turn and let the engine stabilize. Keep turning the airscrews out a 1/4 turn at a time, allowing the engine time to stabilize between changes, until the engine reaches its highest RPM. The air screws should be between 1 and 2-2.5 turns out. If the highest RPM is less than 1 turn (lean), install a larger pilot jet. If the highest RPM is more than 2-2.5 turns out (rich), install a smaller pilot.
If you are going to spend time jetting your bike, might as well throw an exhasut system on, timing plate, filter(s), and Noss head (or shave the stock head)! :biggrin:
Also, if you have not done so, make sure the carbs are clean, and all the passages are not plugged after installing the idle screws...
THIS link has some good information about jetting. It covers Keihin carbs, but the concepts are still the same for Mikuni.